Economy

Fed Move Casts Doubt Over GCC Economic Outlook

The longer the Gulf states leave their currency pegs intact, the more rate cuts their economies will be forced to withstand, and the harder it will be to tackle inflation, even with eventual exchange rate adjustment.

We still think that the UAE and Qatar will adjust their currency arrangements, by revaluation and possibly also a move to a basket peg, but we are increasingly concerned that their slowness to act will undermine the (already limited) value of an eventual move. Even if the other states hold out and wait for a dollar recovery, which is now looking somewhat more viable, the damage of a cumulative 175bps of Fed rate cuts so far (and matching or almost matching moves from the Gulf states) should not be underplayed.

Bahrain Inflation Data Hides Ongoing Pressures

Although figures released by the government claim a fall in inflation in December, price pressures will remain elevated in 2008, particularly in light of Bahrain’s decision to cut interest rates following this week’s Fed cut. We are forecasting an end-of-year rate of 4.0% y-o-y, although inflation should ease as we move through our forecast period. According to the state’s Central Informatics Organisation (CIO), the consumer price index rose by 4.1% y-o-y in December, down from 4.9% in November.

Singapore, Gulf states wrap up FTA talks

Singapore and Gulf Cooperation Council states have struck a deal for a free trade pact, with only legal scrubbing left to be completed, the two governments said.

Both sides have “substantively concluded” negotiations in the final round of talks in the last four days, they said in a joint statement. The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Dubai Intl to invest US$5 bln in India, China & Japan

Dubai International Capital, an investment fund owned by the ruler of Dubai, said it planned to invest about US$5 billion in China, India and Japan over three years as a play on the rapid growth of emerging markets.

The fund’s chief operating officer, Anand Krishnan, also told a news conference the fund could raise its stake in existing holdings like Sony Corp and was looking for potential investments in other Japanese shares.

Abu Dhabi sees investment potential in Georgia

Abu Dhabi Group plans to invest several hundred million dollars in Georgia’s telecoms, banking, tourism and real estate sectors and believes political unrest in the ex-Soviet country will be no obstacle to investment.

The company, owned by a member of the ruling family of Abu Dhabi emirate, will start operating a bank in Georgia this year and spend US$100m building a five-star hotel over the next few years, Chief Executive Bashir Ahmad Tahir said.

Opposing wealth funds “counter-productive” - Greenspan

Former Federal Reserve Chairman Alan Greenspan said any U.S. resistance to sovereign wealth funds investing in the world’s largest economy would be “counter-productive.”

“The negative response is protectionism and that is counter-productive,” Greenspan said at an investment conference in the United Arab Emirates capital of Abu Dhabi. “The U.S. has gained much in post-World War II globalisation and for us to be pulling back makes me sad and is not in the best interest of the U.S.”